European shares and the euro fell this afternoon and the cost of borrowing for Ireland rose as markets reacted to increased political uncertainty in Ireland.
This follows an announcement by the Green Party this morning that it would seek a date for a general election by the end of January, after passing the budget.
Irish borrowing costs, which fell under 8 per cent earlier today on news that EU had approved a Government request for a multi-billion euro package, rose shortly after the Greens’ announcement and closed at 8.1 per cent.
Discussions resumed today between delegations from the IMF, the EU and the Commission and a team of Irish officials to discuss the terms of the bailout.
Minister for Finance Brian Lenihan said under the terms of the bailout, Ireland's banks would be reduced in size to focus on domestic business and consumer lending, which could enable the country to return to bond markets quickly.
Mr Lenihan also said IMF and EU officials were "broadly satisfied" with the Government's four-year plan which is due to be published on Wednesday. December’s budget is the first year of this plan.
"I am quite satisfied on the basis of the discussions to date that the budget that will be presented to Dáil Éireann on the 7th of December will be our own budget [and] nobody else's budget. There has been no request for any change on that," Mr Lenihan told RTÉ's Morning Ireland.
The decision to seek the bailout from the European Commission, the European Central Bank and the IMF was confirmed by Taoiseach Brian Cowen and Mr Lenihan at a press conference last night.
Chairman of Anglo Irish Bank Alan Dukes also addressed the issue of bank restructuring at a conference on banking in Dublin today. "It seems to me that there is at least as strong a case for saying that we need to take massive and decisive action quickly to produce at least two viable ongoing banks for the Irish system," he said.
Concern over restructuring also weighed on Irish bank shares, which closed lower this evening. Irish Life and Permanent shares closed down over 27 per cent at 84 cent, AIB stock was 6 per cent lower at 41 cent and Bank of Ireland was off 19 per cent at 39 cent.
British chancellor George Osborne said Britain would offer Ireland bilateral loans of €7 billion sterling (€8.1 billion). Mr Osborne said it was “overwhelmingly in Britain’s national interest” for Ireland to have a stable economy and banking system because the country was a major trading partner with an interconnected banking sector.
Swedish finance minister Anders Borg said his country will only provide a loan to Ireland if the euro member delivers a "credible" restructuring of its public finances. "We stand ready to consider a Swedish bilateral loan to Ireland, but it is very important to underline that this needs broad political support in the Swedish parliament before we can go through with such a program," Borg said in an interview in Stockholm today.
The White House today welcomed Ireland's intention to seek financial assistance. Spokesman Robert Gibbs said addressing the concerns quickly was a "good step".
The chairman of euro zone finance ministers Jean-Claude Juncker told reporters that Ireland could draw down the first tranche of the bailout money by January and that the bailout should calm fears of market contagion spreading to Portugal and Spain. "I don't think any immediate contagion effect could be the case," he said. "The fact that we settled the Irish case indicates that we are taking financial stability and cohesion of the euro area very seriously."
German finance minister Wolfgang Schaeuble also played down the risk of market problems spreading to other high-deficit countries. "If we now find the right answer to the Irish problem, then the chances are great that there will be no contagion effects," he told ZDF television.
Portuguese prime minister Jose Socrates said he hoped the Irish decision would end uncertainty and stressed that his country "does not need any help".
Spanish economy minister Elena Salgado said Spain's financial sector was stronger than Ireland's and Madrid had "absolutely no" need for a bailout.
Moody's Investors Service also said today a "multi-notch" downgrade of Ireland's credit rating, still leaving it in the investment grade category, was now the most likely outcome.
A European source briefed on the talks said a sum between €80 billion and €90 billion was likely to be involved but a statement from the finance ministers did not specify the amount.
Additional reporting: Bloomberg/Reuters